Illumina Shuns Roche’s Improved Acquisition Offer of $6.5B

Firm asks stockholders not to tender shares and to support Illumina at its annual meeting.

Roche’s proposed acquisition of Illumina is continuing to play out just like any hostile takeover of a market-leading company. Yesterday, Illumina issued a statement, as expected, rejecting Roche’s boosted bid of $51 per share, or about $6.5 billion. Illumina’s directors continue to tell their stockholders not to tender any shares.

“Our board of directors together with our financial and legal advisors met on March 31 and again on April 2 to review and consider the revised offer and unanimously determined that it dramatically undervalues Illumina and does not adequately reflect Illumina’s singular position in an industry poised for extraordinary growth,” Jay Flatley, president and CEO, said in a letter to Roche chairman, Franz Humer.

On January 25, Roche launched a $5.7 billion tender offer to buy Illumina for $44.50 per share in cash. At the time Roche said it had tried to engage Illumina’s board in discussions for weeks. The proposed per share price represents a 64% premium over Illumina’s stock value on December 21, 2011—the day before rumors about a potential deal between the firms started circulating—and a 43% premium over the one month historical average. Illumina was trading at $37.685 the day before Roche went public with its offer and at $51.37 at the close of yesterday.

Immediately after Roche’s initial offer, a day later, Illumina adopted a shareholders rights agreement, or poison pill. Roche says that it will nominate candidates for election to Illumina’s board of directors and propose certain other matters for the consideration of Illumina’s shareholders at Illumina’s 2012 annual meeting. In its latest rejection of Roche, Illumina said that in connection with the annual meeting to be held on April 18, to vote the White Card in support of Illumina’s directors and against Roche’s additional proposals.

By the beginning of February, Illumina responded to Roche’s initial offer saying the proposal grossly undervalues the company’s current status as well as future potential. It also claimed that Roche was being blatantly opportunistic. Roche of course said that it believed its offer is full and fair and that it was disappointed with this outcome.

On March 29, the company decided to raise its offer from $44.50 per share to $51 per share, which prompted Illumina’s latest rejection. Some expect Roche to have to go to at least $60 per share. Roche, however, has reportedly said it doesn’t need Illumina, but analysts believe this is more of a pressure tactic than anything else.

As for the rationale behind the proposed takeover, Illumina would significantly strengthen Roche’s position in sequencing and microarrays. Combining Illumina’s platforms with Roche’s own diagnostics expertise would speed the development of sequencing-based routine clinical and companion diagnostic tests. 454, owned by Roche, and Life Technologies are the two other sequencing giants. Life Technologies and Illumina pulled ahead in January 10 when both launched one-day sequencers. Life Technologies closed January 24, the day before Roche divulged its move for Illumina, at $47.30 for a market cap of about $8.42 billion. Even at $60 per share, Illumina would have a market cap of about $7.3 billion.

The latest sequencing firm to win the appellation of “game changer” was Oxford Nanopore Technologies for MinION, set to go on sale in the second half of 2012. The MinION is about the size of a USB thumb drive and is said to deliver 150 megabases of DNA sequences per hour. It is intended for one-time use only and will sequence up to a million bases.

Other breakthrough technologies for DNA sequencing are in the works. For example, PacBio SMRT (single-molecule, real-time) technology incorporates single-molecule sequencing techniques and advanced analytics to reveal true biology in real time. The company reports that the technology can perform long reads, and produce fast results and more informative data at lower overall costs.